May 12, 2017 • 630.517.7756 • www.ftportfolios.com
Brian S. Wesbury – Chief Economist
Robert Stein, CFA – Dep. Chief Economist
Strider Elass – Economist
April CPI

The Consumer Price Index (CPI) rose 0.2% in April, matching
consensus expectations. The CPI is up 2.2% from a year ago.

“Cash” inflation (which excludes the government’s estimate of what
homeowners would charge themselves for rent) increased 0.1% in
April and is up 1.8% in the past year.

Energy prices rose 1.1% in April, while food prices rose 0.2%. The
“core” CPI, which excludes food and energy, increased 0.1% in April,
slightly below the consensus expected rise of 0.2%. Core prices are
up 1.9% versus a year ago.

Real average hourly earnings – the cash earnings of all workers,
adjusted for inflation – rose 0.1% in April and are up 0.4% in the past
year. Real average weekly earnings are up 0.3% in the past year.
Implications: After a brief pause in March, inflation continued its climb in
April, with consumer prices following producer prices higher. Consumer
prices are up 2.2% in the past year, compared to a 1.1% increase in the twelve
months ending April 2016 and a 0.2% decline for the period ending April
2015. In other words, inflation is already in a rising trend. Energy prices led
the index higher in April, up 1.1%, while rising costs for vegetables pushed
food prices up 0.2%. Stripping out the volatile food and energy components,
“core” CPI rose 0.1% in April and is up 1.9% in the past year. Housing led
“core” prices higher in April, rising 0.3%, more than offsetting declines in
medical and vehicle costs. Real average hourly earnings also rose in April, up
0.1%. These earnings are up a modest 0.4% over the past year, but, given
continued employment gains and a tightening labor market, this should
accelerate soon. Taken together, consumer prices aren’t showing signs of
hyper-inflation, but because the Fed believes in the Phillips Curve the trend of
accelerating price gains should have Fed officials focusing more on the
potential for inflation to rise faster than desired as the jobless rate continues to
fall below their long-term target. That’s why we expect the Fed to raise rates
twice more in 2017, once in June and again in September. Then, in the fourth
quarter, we expect the Fed to start unwinding the bloated Fed balance sheet
that ballooned during early episodes of quantitative easing.
CPI - U
Apr-17
Mar-17
0.2%
0.1%
0.1%
1.1%
0.2%
0.3%
0.2%
-0.2%
-0.2%
0.1%
0.1%
-0.3%
-0.1%
-0.1%
-3.2%
0.3%
0.1%
0.2%
-0.3%
0.1%
-0.1%
0.4%
All Data Seasonally Adjusted Except for Yr to Yr
Consumer Price Index
Ex Food & Energy
Ex Energy
Energy
Food and Beverages
Housing
Owners Equivalent Rent
New Vehicles
Medical Care
Services (Excluding Energy Services)
Real Average Hourly Earnings
Source: U.S. Department of Labor
Feb-17 3-mo % Ch. 6-mo % Ch. Yr to Yr
annualized annualized % Change
0.1%
0.0%
2.0%
2.2%
0.2%
0.6%
1.7%
1.9%
0.2%
1.0%
1.7%
1.7%
-1.0%
-11.7%
6.1%
9.3%
0.2%
3.1%
1.7%
0.6%
0.3%
2.7%
2.9%
3.2%
0.3%
2.6%
3.0%
3.4%
-0.2%
-2.7%
0.5%
0.4%
0.1%
0.4%
1.1%
3.0%
0.3%
1.5%
2.5%
2.7%
0.2%
2.7%
0.2%
0.4%
This report was prepared by First Trust Advisors L. P., and reflects the current opinion of the authors. It is based upon sources and data believed to be accurate and reliable.
Opinions and forward looking statements expressed are subject to change without notice. This information does not constitute a solicitation or an offer to buy or sell any security.